Books / Digital Text

12. The Economics of Violent Intervention in the... > 9. Binary Intervention: Government Expenditures

H. Social Security

Before ending our discussion of specific governmental activities, we may note in passing a curiously popular form of government expenditure: “social security.” Social security confiscates the income of wage earners, and then, most people presume, it invests the money more wisely than they could themselves, later paying out the money to the former wage earners in their old age. Considered as “social insurance,” this is a typical example of government enterprise: there is no relation between premiums and benefits, the latter changing yearly under the impact of political pressures. On the free market, anyone who wishes may invest in an insurance annuity or in stocks or real estate. Compelling everyone to transfer his funds to the government forces him to lose utility. Thus, even on its face, it is difficult to understand the great popularity of the social security program. But the true nature of the program differs greatly from the popular image. For the government does not invest the funds it takes in taxes; it simply spends them, giving itself its own bonds which must later be cashed when the benefits fall due. The cash, of course, can be obtained only by further taxation. Thus the public must pay twice for one payment of social security. The program is essentially one of making more palatable a general taxation of lower-income, wage-earning groups.